What insurance agents need to know about vacant property exposures and coverage options

Commercial Vacant Property Insurance: A Guide for Insurance Agents and Brokers

Navigating the world of property insurance can be complex, and commercial vacant properties present a unique set of challenges. For insurance agents and brokers, understanding the intricacies of vacant property insurance is crucial to providing comprehensive coverage and mitigating potential risks for your clients. This guide includes helpful insights from 35-year underwriting veteran and vacant property program leader at Breckenridge, Michael Marks, ARM, ASLI. In it, Marks shares important aspects of vacant property insurance and covers common misconceptions, specific risks, coverage choices, and best practices for agents and brokers.

Understanding Vacant Property Risks and Exposures

One of the most common misconceptions among agents and brokers is a complete understanding of when a property officially becomes vacant and how that status affects coverage. Vacant status also limits your market options and will often require you to turn to an Excess and Surplus wholesale or program option. Additionally, there's often a misconception that adequate coverage for vacant properties is difficult to obtain.

Key Differences: Vacant vs. Unoccupied

It's essential to differentiate between "vacant" and "unoccupied" properties, as this distinction significantly impacts insurance coverage.

• Unoccupied is without people using the building for its given purpose or being there daily.

• Vacant means the property is completely empty of both people and personal property

This distinction is crucial because it affects the risk profile of the property and, consequently, the type of insurance needed.

Standard property insurance policies are designed for occupied buildings. When a building becomes vacant, typically after 60 consecutive days of being less than 31% occupied, the coverage changes. This is where specialized vacant property insurance policies become essential.

Top Hazards for Vacant Properties

Vacant properties are exposed to a range of hazards that increase their risk profile. Some of the most significant include:

• Fire

• Water damage from sprinkler systems, frozen pipes bursting, etc.

• Vandalism

• Theft (including theft of copper wiring and piping)

• Lack of maintenance

These hazards can cause significant losses. It is important for agents and brokers to help their clients get the right vacant property insurance coverage and to provide insights on steps they can take to prevent these types of exposures.

Commercial Property Security

Insuring vacant commercial properties presents unique security exposures. Commercial buildings may be located in less populated areas or simply be less closely monitored. On the flip side, they often have fewer entry points and may already have security measures like alarms and cameras or even protection dogs.

Even with these protections in place, if these security systems are compromised, batteries fail, or regular checks are not done, the property can be at risk for theft or vandalism. Any violation to a commercial property could result in significant unplanned expenses if not properly insured for these exposures.

Coverage Options and Policy Nuances

Know When to Seek Vacant Coverage

Agents and brokers need to plan ahead for property managers and owners that might be without tenants for a period of time, who are in renovations that extend beyond a Builder’s Risk policy term, or if a single property becomes vacant among a schedule that excludes vacants. Ideally, you want to plan for these vacancies a few months in advance or know who you will turn to for quick and reliable excess and surplus lines options as these will often not fit an admitted market carrier appetites.

Common Exclusions to Watch For and Essential Coverage Extensions

Agents and brokers must also be aware of common exclusions in vacant property insurance policies. Most policies exclude coverage for losses from vandalism, sprinkler leaks (unless they protect against freezing), or broken glass. They also do not cover water damage, theft, or attempted theft if the building has been empty for over 60 days. To ensure comprehensive protection, vacant property insurance policies should include specific coverage extensions or endorsements for these unprotected areas.

Maintaining Coverage on Vacant Properties

Maintaining coverage on a vacant property requires policyholders to adhere to specific requirements and warranties. These often include:

• Keeping the property locked and secured

• Maintaining heat or draining pipes and shutting off water

• Conducting regular recorded rounds of the building

Agents play a vital role in ensuring their clients understand and comply with these requirements to avoid jeopardizing their coverage. It is important that the insured understands the warranties and conditions of the coverage to comply and maintain coverage for the vacant property.

Agent and Broker Best Practices and Client Communication

Effective communication and diligent information gathering are key when dealing with vacant property insurance. Agents and brokers should ask detailed questions to assess the client's needs accurately, including:

• The building's construction

• The projected duration of vacancy

• The operational status of utilities

• Existing protection measures (alarms, sprinkler systems, etc.)

• Property maintenance practices

• Any ongoing renovation work

• The insured's plans for the property (sale, rental, repurposing, etc.)

By gathering comprehensive information, agents and brokers can tailor vacant property insurance solutions that effectively address their clients' specific circumstances.

Partnering with Accretive for Vacant Property Insurance

At Accretive, we understand the complexities of vacant commercial property insurance. Our team at Breckenridge offers a longstanding non-admitted vacant property program focused exclusively on these risks and write them regularly with an established partner. This program offers comprehensive coverage options, including Basic Perils and Special Perils or All Risk coverage. These policies can be tailored to include or exclude specific coverages such as vandalism, theft, water damage, and sprinkler leakage, with options for Actual Cash Valuation or Replacement Cost. To meet diverse needs, they also offer full limits, primary limits, and excess coverage solutions.

Our expertise extends to various vacant property situations and additional wholesale brokerage markets should it not fit our program. We welcome the opportunity to discuss specific client needs and coverage options.

Don't navigate the complexities of vacant property insurance alone. Connect with an Accretive creative specialist unit today for expert guidance and tailored coverage solutions.